Sunday, July 30, 2017

the key economic release of the past week was the 1st, or advance estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which was accompanied by an annual revision to national accounts data over the prior three years....the other widely watched releases of the past week included the June advance report on durable goods and the June report on new home sales, both from the Census bureau, the June report on existing home sales from the National Association of Realtors (NAR), and the Case-Shiller house price indexes for May from S&P Case-Shiller, which saw their national home price index remain 5.6% higher than the same month's report a year ago...in addition, this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for June, a weighted composite index of 85 different economic metrics, which rose from a downwardly revised -0.30 in May to +0.13 in June...that boosted the 3 month average of the index to +0.06 in June, up from -0.04 in May, still indicating national economic activity has been near the historical trend during the 2nd quarter... this week also saw the release of two more regional Fed manufacturing surveys for July: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reportedits broadest composite index rose to +14 in July from +11 in June, suggesting an ongoing expansion in that region's manufacturing; and the Kansas City Fed manufacturing survey for July, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index fell to +10 in July, down from +11 in June but up from +8 in May, also suggesting an ongoing expansion in the 10th District's manufacturing...

Advance Estimate of 2nd Quarter GDP & Revisions From 2014 to Present

the Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis released on Friday included an annual revision to the past 3 years of GDP releases, revising previously published data from the first quarter of 2014 through the first quarter of 2017, which on net indicated that economic growth over the period from 2014 to 2016 was at a 2.3% annual rate, revised from the 2.2% composite annual growth previously published for that period of the current expansion....in addition to the recent quarters of 2017, this report showed that the GDP growth rate for 2014 was revised from 2.4% to 2.6%; that the growth rate for 2015 was revised from 2.6% to 2.9%, and that the GDP growth rate for 2016 was revised from 1.6% to 1.5%...

the first quarter of 2017, which had been revised up to a growth rate of 1.4% when we reviewed it a month ago, has now been revised back down to show growth at a 1.2% rate…major first quarter components that were revised lower included nonresidential fixed investment, which was revised from growth at a 11.0% rate to growth at a 8.1% rate, growth in real private inventory investment, which was revised from growth at a inflation adjusted $4.3 billion rate to growth at $1.2 billion rate, residential fixed investment, which was revised from 13.0% growth to 11.1% growth, and to federal government spending, which was revised from shrinking at a 2.0% rate to shrinking at a 2.4% rate...in addition, growth in first quarter imports, which subtract from GDP, was revised from a 4.0% growth rate to a 4.3% rate....those negative revisions were partially offset by an upward revision to personal consumption expenditures (PCE), from a 1.1% growth rate to growth at a 1.9% rate, an upward revision to growth in exports, from a 7.0% rate to a 7.3% rate, and an upward revision to state and local government spending, from shrinking at a 0.2% rate to growth at a 0.5% rate...thus the estimates for the 1st quarter of 2017 GDP have gone from the initial estimate of growth at a 0.7% rate, to an 1.2% growth rate in the 2nd estimate, to a 1.4% rate of growth in the 3rd estimate, and finally back to growth at a 1.2% rate in this annual revision...

all of those revisions should leave you with the sense to take this initial advance estimate of 2nd quarter growth, which was released on Friday with some June data still not reported, with a grain of salt...the Advance Estimate of 2nd Quarter GDP indicated that the real output of goods and services produced in the US grew at a 2.6% annual rate over the output of the 1st quarter of this year, which we have just seen was revised to show growth at a 1.2% rate...the BEA cautions that the source data is incomplete and also subject to revisions, which have now averaged +/-0.6% in either direction from the advance to the third estimate, and +/- 1.2% from the advance estimate to the final reading...note that June construction and inventory data have yet to be reported, and that information on the assumptions used for those reports and unavailable source data for this advance estimate is provided in a technical note that is posted with the news release, and references an Excel file with key source data and assumptions...

while we cover the details on the 2nd quarter below, remember that the GDP release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes chained from 2009, and then that all percentage changes in this report are calculated from those 2009 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts....for our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the 1st estimate of 2nd quarter GDP, which is linked to on the sidebar of the BEA press release, which also offer links to just the tables on Excel and other technical notes...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since 2013, table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years, table 3a, which shows the current dollar value of each of the GDP components, table 3b, which shows the inflation adjusted value of each of those components, table 4, which shows the change in the price indexes for each of the components; and to table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts....the intervening tables in this release (ie, 1a, 1b, 2a, 2b,etc) give us the previously published data for each of those metrics going back to the 3rd quarter of 2013, should anyone be interested in the finer details of the annual revision..

personal consumption expenditures (PCE), which accounts for nearly 69% of GDP, grew at a 3.1% rate in current dollars in the 2nd quarter, actually down from the first quarter’s spending increase at a revised 4.1% rate, but once the inflation adjustments were made with the PCE price indices for each quarter, real PCE rose 2.8% in the 2nd quarter after rising 1.9% in the first...consumer spending for durable goods rose at a 2.9% rate, mostly on a jump in spending for recreational goods and vehicles, but since weighted prices for those durable goods fell at a 3.4% rate, real output of durable goods represented by that spending increased at a 6.3% rate...in a like manner, consumer spending for non durables rose at less than a 0.2% rate, but the PCE price index for non-durables was down more than 3.6%, mostly on lower energy prices, meaning real growth in consumption of non durables was at a 3.8% rate...meanwhile, the 4% growth in personal spending for services was reduced by a +2.1% deflator to show real 2nd quarter growth in services was at a 1.9% rate...thus, with real growth in all components of personal consumption expenditures, real growth in output of consumer durable goods added 0.47 percentage points to the change in GDP, real growth in non-durable goods output for consumers added 0.55 percentage points to 2nd quarter GDP growth, and real growth in services provided to consumers added 0.91 percentage points to the change in 2nd quarter GDP...

just as personal consumption expenditures are adjusted for inflation using the PCE price indices to arrive at real PCE, the other current dollar components of GDP are also adjusted for inflation with the quantity indexes shown in table 5 of the GDP pdf to yield the real change in the output of goods or services.....hence, real gross private domestic investment, which had risen at a 8.2% annual rate in the 1st quarter as investment in residential and non-residential structures soared, rose at a 2.2% annual rate in the 2nd quarter, as investment in residential property fell...real non residential fixed investment rose at a 5.2% annual rate as real investment in non-residential structures rose at a 4.9% rate, real investment in equipment rose at a 8.2% rate, and investment in intellectual property grew at 1.4% rate...as a result, investment in real non residential fixed investment added 0.62 percentage points to the change in 2nd quarter GDP as real investment in non-residential structures added 0.14 percentage points, real investment in equipment added 0.44 percentage points to the change in GDP, and investment in intellectual property added 0.06 percentage points to the change in GDP...however, residential investment fell at a 6.8% rate and hence subtracted 0.27 percentage points from the 2nd quarter's GDP, leaving the total fixed investment contribution at 0.36 percentage points...for an easy to read table as to what's included in each of those investment categories, see the NIPA Handbook, Chapter 6, page 3...

meanwhile, in the first real drop since the 3rd quarter of 2011, investment in real private inventories fell by an inflation adjusted $0.3 billion in the 2nd quarter, after they had grown by an adjusted $1.2 billion in the 1st quarter, and as a result the $1.5 billion downward swing in inventory growth subtracted 0.02 percentage points from the 2nd quarter's growth rate, after an inflation adjusted $61.9 billion decrease in inventory growth in the 1st quarter had subtracted 1.46 percentage points from that quarter's GDP growth...however, smaller inventories indicate that less of the goods produced during the quarter were being left "sitting on the shelf”, so their quarter over quarter decrease by $1.5 billion meant that real final sales of GDP were relatively greater by that much, which was still not enough to significantly boost real final sales of GDP, which increased at a 2.6% rate in the 2nd quarter...that's compared to the real final sales growth at a 2.7% rate in 1st quarter, when the change in the decrease in inventory growth was much greater..

after adjustment for higher export and import prices, both real exports and real imports increased in the 2nd quarter, as our real exports of goods and services rose at a 4.1% rate in the second quarter, after rising at a 7.3% rate in the 1st quarter, while our real imports rose at a 2.1% rate in the 2nd quarter after rising at a 4.3% rate in the 1st quarter...as you'll recall, increases in exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), while increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn't have been because it was not produced here....thus the 2nd quarter increase in real exports added 0.48 percentage points to 2nd quarter GDP, after adding 0.85 percentage points to first quarter GDP...on the other hand, since imports subtract from GDP, their increase at a 2.1% rate subtracted 0.31 percentage points from 2nd quarter GDP, after first quarter imports had subtracted 0.63 percentage points from that quarter's growth...as a result, our improving trade balance added a total of 0.18 percentage points to 2nd quarter GDP, after a revised improved trade deficit added 0.22 percentage points in the first quarter..

finally, real consumption and investment by branches of government rose at a 0.7% annual rate in the 2nd quarter, after decreasing at a 0.6% rate in the first quarter, as federal government consumption and investment grew at a 2.3% rate and state and local consumption and investment fell at a 0.2% rate...inflation adjusted federal spending for defense rose at a 5.2% rate and that added 0.20 percentage points to 2nd quarter GDP growth, while real non-defense federal consumption and investment fell at a 1.9% rate and subtracted 0.05 percentage points from GDP...note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services....meanwhile, state and local government investment and consumption expenditures, which fell at a 0.2% annual rate, subtracted 0.02 percentage points from the quarter's growth rate, as a decrease in real state and local investment at a 5.9% rate accounted for the decrease...

our FRED bar graph below has been updated to include 2nd quarter GDP as well as the revisions to each of the GDP components from prior years resulting from this week's annual revision...each color coded bar below shows the real change, in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2013...in each quarterly grouping of seven bars on this graph, the quarterly changes in real (ie, inflation adjusted) personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in private inventories is in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and investment is shown in pink, and the real change in Federal government spending and investment is shown in grey...those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so that when imports shrink, as they did in the recent quarter, they will appear above the line as an addition to GDP, and when they increase, they'll appear below the zero line...it’s fairly clear that our personal consumption expenditures has underpinned GDP growth over this period, while increasing imports, and more recently falling inventory investment, have been the major negatives…in the 2nd quarter, on the far right, we see that the major reason for the decent growth in the 2nd quarter was that there were no major negatives except for the increase in imports, which itself was offset by the increase in exports…generally, the quarters with the poorest GDP growth are those where one or more of the major GDP components substantially contracts, subtracting from the growth added by the others..

June Durable Goods: New Orders Up 5.6%, Shipments Unchanged, Inventories Up 0.4%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for June (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $14.9 billion or 6.5 percent to $245.6 billion, following a revised drop of 0.1% in May new orders, which had been originally reported as a 1.1% decrease...year to date new orders are now 5.0% higher than those of 2016, vs the 2.8% year over year change we saw in this report last month...as is usually the case, the volatile monthly change in new orders for transportation equipment drove the June headline change, as those transportation equipment orders rose $14.6 billion or 19.0 percent to $91.6 billion, on a 131.2% increase to $25,328 million in new orders for commercial aircraft....excluding new orders for transportation equipment, other new orders were up 0.2% in June, even as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were down 0.1% to $63,416 million...

the seasonally adjusted value of June's shipments of durable goods, which were inputs into various components of 2nd quarter GDP after adjusting for changes in prices, were little changed at $236.0 billion, after May shipments were revised from an increase of 0.8% to $234.9 billion to a 1.2% increase to $235.9 billion....a 0.6% decrease in shipments of transportation equipment was the cause of weakness, as the value of shipments of motor vehicles fell 0.7% to $54,181 million...excluding that volatile sector, the value of other shipments of durable goods rose 0.2%, as new orders for nondefense capital goods excluding aircraft were up 0.2% to $63,049 million, a figure which was reflected in the 2nd quarter GDP equipment investment figures....meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 11th time in 12 months, increasing by $1.6 billion or 0.4 percent to $397.0 billion, after the change in May's inventories was revised from a 0.2% increase to a 0.1% increase...increased inventories of machinery was a major factor in the June inventory increase, as they rose $0.8 billion or 1.2 percent to $68.3 billion...

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the third time in four months, rising by $14.2 billion or 1.3 percent to $1,135.6 billion, following a May decrease that was revised from 0.2% to 0.1%...unsurprisingly, a $12.8 billion or 1.7 percent increase to $776.8 billion in unfilled orders for transportation equipment was responsible for most of the increase, but unfilled orders excluding transportation equipment were also up 0.4% to $358,829 million....compared to a year earlier, the unfilled order book for durable goods is now 0.7% above the level of last June, with unfilled orders for transportation equipment 3.6% above their year ago level, largely on a 5.7% increase in the backlog of orders for defense aircraft...

New Home Sales Little Changed in June

the Census report on New Residential Sales for June (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 610,000 new homes annually, which was 0.8 percent (±12.1 percent)* above the revised May rate of 605,000 new single family home sales annually and 9.1 percent (±14.4 percent)* above the estimated annual rate that new homes were selling at in May of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether June new home sales rose or fell from those of May or even from those in June a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....hence, these initial new home sales reports are not very reliable and often see significant revisions...with this report; sales new single family homes in May were revised from the annual rate of 610,000 reported last month to a 605,000 a year rate, April's annualized home sale rate, initially reported at 569,000, were revised from last months upward revision of 593,000 back down to 577,000, while the annual rate of March's sales, initially reported at 621,000 revised from 642,000 to an annual rate of 644,000 last month, were now revised lower, to an annual rate of 638,000...

the annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 55,000 new single family homes sold in June, down from the 57,000 new homes that sold in May but virtually the same as the 55,000 new homes that sold in April....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in June was $310,800, down from the median sale price of $324,300 in May, and down from the median price of $321,600 in June of last year, while the average June new home sales price was $379,500 , down from $381,400 average in May, but up from the average sales price of $364,300 in June a year ago....a seasonally adjusted estimate of 272,000 new single family houses remained for sale at the end of June, which represents a 5.4 month supply at the June sales rate, up from the reported 5.3 month supply in May....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales increase to 610,000 Annual Rate in June and A few Comments on June New Home Sales...

Existing Home Sales Down 1.8% in June

the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell by 1.8% from May to June, projecting that 5.52 million homes would sell over an entire year if the June home sales pace were extrapolated over that year, a pace that was still 0.7% greater than the annual sales rate projected in June of a year ago...that came after an annual sales rate of 5.62 million homes in May, and an annual home sales rate of 5.56 million in April...the NAR also reported that the median sales price for all existing-home types in June was $263,800 in June, up from $252,500 in May and 6.5% higher than in June a year earlier, which they report as "the 64th straight month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Retreat 1.8 Percent in June", is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process..

since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this unadjusted data indicates that roughly 601,000 homes sold in June, up by 8.3% from the 555,000 homes that sold in May, and 3.3% more than the 572,000 homes that sold in June of last year, so we can see there was again a seasonal adjustment of over 10% in the annualized published figures to correct for the typical early summer increase in home sales...that same pdf indicates that the median home selling price for all housing types rose 4.5%, from a revised $252,500 in May to $263,800 in June, while the average home sales price was $303,900, up 3.3% from the $294,300 average in May, and up 4.9% from the $289,800 average home sales price of June a year ago, with the regional average home sales prices ranging from a low of $243,800 in the Midwest to a high of $396,100 in the West...for additional coverage with long term graphs on this report, see "NAR: "Existing-Home Sales Retreat 1.8 Percent in June"" and "A Few Comments on June Existing Home Sales" from Bill McBride at Calculated Risk...

note on the graphs used here

in March a year ago the St Louis Fed, home to the FRED graphs, changed their graphs to an interactive format, which apparently necessitated eliminating some of the incompatible options which we had used in creating our static graphs before then...as a result, many of the FRED graphs we've included on this website previous to that date, all of which were all created and stored at the FRED site and which we'd always hyperlinked back there, were reformatted, which in many cases changed our bar graphs to line graphs, and some cases rendered them unreadable... however, you can still click the text links we've always used in referring to them to view versions of our graphs as interactive graphs on the FRED site, or in the case where an older graph has gone missing, click on the blank space where it had been in order to view it in the new format....